Tokenization: Digital power for democratizing investments

Technology offers unique business gems in the MENA
Tokenization concept

The advent of real estate platforms, including Propertiq in the UAE and Arcom in Saudi Arabia, stands as a testament to the boundless potential that property tokenization has unlocked within the region’s financial landscape. Augmenting these private sector endeavors are government-led initiatives such as Emirates Blockchain Strategy, which endeavors to migrate a staggering 50 percent of all UAE government transactions onto blockchain technology.

Tokenization, the practice of substituting sensitive data with an alternate value known as a token, has emerged as a transformative mechanism for converting tangible assets into blockchain-based tokens. By effecting this process, property tokenization has redefined the contours of real estate investment and expanded the scope of asset-based financing.

Read: FTX users’ debt is now a token

Tokenization in real estate


The concept of tokenization has found a promising application in the realm of real estate. Recently, a new fintech venture called PurpleFi has introduced fractional ownership in Dubai, allowing investors to own a portion of a property for a mere $100.

Through tokenization, the value of an asset can be divided into fractional claims, making luxury asset classes accessible to retail investors who were previously unable to afford large-scale investments. The ability to buy into a property for just $100 illustrates how tokenization and fractional ownership have emerged as democratizing tools, offering liquidity for illiquid securities with low trading volumes.

By utilizing the Ethereum blockchain, smart contracts can be securely implemented, streamlining jurisdiction compliance and ownership rules with minimal manual intervention and reduced costs compared to traditional clearinghouses that handle conventional asset classes.

In this way, real estate security tokens enable a wider range of individuals to make online purchases around the clock, regardless of location, allowing retail clients to build diverse portfolios despite limited funds.

According to recent reports, the global market for tokenizing real estate properties has exceeded $20 billion in recent months, underscoring the significance of this trend. However, while tokenization has tremendous potential in the property sector, it also holds immense benefits in the broader financial landscape.

Security tokens


The digitalization of security has garnered considerable interest due to its ability to overcome the expensive, slow, and insecure paper-based market currently in use.

A security token, a digital representation of financial assets such as equities, ETFs, fixed income, funds, and others, offers investors access to a 24/7 global market, which facilitates continuous trading without physical limitations.

Investors and traders can now make payments, trade ownership of digital assets, and receive settlements in real time without the need for a bank or broker. This is achieved through a single platform that employs end-to-end transparent and secure processes that effectively eliminate fraudulent transactions while thwarting hacking attempts.

Another significant advantage of security tokens is that financial transactions are conducted on smart devices, further democratizing the process. Previously underserved populations without access to bank accounts can now participate in securities trading easily.

According to a new report by the global consulting firm BCG and ADDX, the digital exchange for private markets, asset tokenization is expected to expand 50-fold, creating a $16.1 trillion business opportunity by 2030.


Tokenizing sensitive info


By implementing tokenization, it is possible to secure confidential customer data during encryption processes. Specifically, credit card transactions can utilize a unique, merchant-specific encrypted token for each purchase, thereby ensuring that sensitive payment information remains protected from any unauthorized access by malicious entities. 

Tokenizing brand ownership


The decentralization of social media and the introduction of tokens has facilitated a paradigm shift in the ownership model of companies, brands, and communities. With the help of loyalty programs, users and clients are now able to possess a stake in these entities, empowering them to partake in decision-making processes and reap the benefits of their involvement.

By acquiring tokens of a particular company users can enter an engagement group where they can collaborate with the company in co-creating future product lines. This affords them a sense of belonging, making them feel valued and appreciated.

If token owners choose to disengage from the community, they can transfer ownership of their tokens to another party. In exchange, the company will receive royalties from the transaction, thereby maintaining its profitability.

Tokenization examples from the region


The Abu Dhabi Islamic Bank has recently introduced a cutting-edge, tokenized contactless payment system in partnership with Visa and Tappy Technologies, based in China. Known as ADIB Pay, this state-of-the-art payment platform is a physical clip that can be attached to wearable devices, such as watches or bracelets, with payment capabilities similar to smartwatches. Globally, Apple Pay and Google Pay both use tokenized payments.

In January 2023, Fadel Al Ali, the Chairman of the Dubai Financial Services Authority (DFSA), said: “In line with UAE government initiatives, we have worked to create an enabling environment for the digital economy and have introduced a new regulatory framework for crypto tokens to further facilitate the future of finance in the DIFC. We set high standards in building a clear and flexible regulatory framework, based on the best practices and laws of the world’s leading financial jurisdictions.”

In a similar vein, the Central Bank of Egypt (CBE) released regulations in March 2023 that address payment card tokenization on electronic device applications. Once approved and implemented, these regulations will enable contactless payments through fintech services such as Apple Pay, Google Pay, and Samsung Pay. The regulations concentrate on payment tokenization, whereby a token is used during the purchase transaction.

Lastly, a groundbreaking new partnership in the UAE will enhance the security of cryptocurrencies and NFTs – Proof of Ownership. IDnow, a renowned digital identity proofing platform provider, has recently collaborated with UBIRCH, a leading German trust platform provider, to launch KYCT (know-your-customer token) solutions in the UAE.

The solution verifies the identity and ownership of crypto wallet holders and authenticates the origin of minted assets, such as non-fungible tokens, better known as NFTs. Around 23 percent of the UAE population owns at least one NFT, double the global average. This innovative technology could prove indispensable in safeguarding individuals, businesses, brands, and the entire financial ecosystem in a decentralized environment.

According to a recent report by cryptocurrency asset management specialist Recap, Dubai ranks as the second most crypto-ready city in the world, with 772 crypto-based companies.

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